Last year was significant for China. The most important development was the change in the leadership of the Communist Party of China (CPC). The fifth generation of leaders under President Xi Jinping assumed office earlier in the year. Leadership changes in China are elaborate and complex processes. President Xi and his team were elected through a rigorous political exercise made more complicated by the factional dynamics within the CPC.
The new leadership is characterised by contrasts in its outlook. While economically it is expected to usher in advanced market-oriented regulatory changes, politically it is expected to remain conservative. These contrasts will influence China’s attitude to global and domestic priorities.
Globally, China aims to increase its strategic influence both regionally and multilaterally. As in past, it would rely on its economic strength for upping strategic clout. In this respect, the new leadership encourages greater global integration. Such integration, unlike in the past, will not be driven primarily by labour-intensive exports and an undervalued exchange rate. On the contrary, services are likely to emerge as the focus industries for China’s future growth. China’s growth strategy for the next couple of decades will be marked by its emphasis on services, particularly finance, information technology and biotechnology.
The priority of the new leadership to integrate deeper with the global financial system is in contrast to the relatively less enthusiasm of the earlier leadership in this regard. President Xi’s team has taken up financial reforms as a priority. In typical Chinese style, domestic financial reforms are taking place in a calibrated fashion. China is proceeding on full convertibility of the yuan in the capital account in the Shanghai Free Trade Zone. Several such zones have been sanctioned by the 3rd Plenary of the 18th Central Committee of the CPC that was held in November. While sceptics have expressed doubt over the effectiveness of such Shenzhen-style zones in advancing financial sector reforms, China’s intentions are loud and clear. Pushing domestic financial reforms and occupying greater space in global finance is top priority given China’s objective to make the yuan a global reserve currency.
Aggressive domestic reforms for giving the Chinese economy greater market-oriented dimension will characterise
China’s economic agenda in the near term. These reforms will be accompanied by emphasis on correcting inequalities and reducing corruption. Both have assumed alarming dimensions in China.
The big question is whether China will be able to achieve a more egalitarian income distribution and a